Lifeline for Aberdeen savers

MORE than 400,000 unit trust investors are being offered a lifeline to escape from the troubled fund manager Aberdeen Asset Management.

Fund manager New Star is taking over six of Aberdeen's most popular funds and hiring several key investment managers. Investors will switch once the deal is finalised in March.

The Aberdeen funds in the deal include its Sterling Bond, Fixed Interest, High Yield Bond and Equity Income Fund. Also switching are the company's two technology unit trusts, Aberdeen Technology and Aberdeen European Technology, along with their experienced fund manager John Pullar-Strecker. Phil Roantree, who manages Sterling Bond, will also transfer to New Star.

Aberdeen has been savaged over the past year for its failures in running split-capital investment trusts. The huge losses on these funds have seriously damaged the company's investment reputation. New Star is paying about £92.5m to buy the trusts. The final price depends on the value of the funds when the deal is signed.

John Duffield, chairman of New Star, says: 'We are very pleased with this deal. Our overwhelming priority is to deliver the best possible investment results to the new investors who will be joining us.' Letters are being posted today and tomorrow, giving investors more details.

Paul Ilott of Bates Investment Services in Leeds says: 'Investors and IFAs alike have been shying away from Aberdeen funds for the past few months because of uncertainty about the future.

'Money has been flowing out rather than flowing in, and it has made it difficult for the funds to perform well. We think that the investors who transfer to New Star will feel more comfortable, even though in some cases it is the same people managing their money.'

Mark Dampier of IFA Hargreaves Lansdown in Bristol agrees: 'If I were an Aberdeen unit holder, I'd be delighted. They are joining a strong team with good prospects.'

Most of the transferring Aberdeen funds will continue as before. The one exception is the Equity Income Fund. This will be taken over by New Star's Toby Thompson and, at a later date, is likely to be merged with New Star's existing Higher Income fund.

However, the deal casts a shadow over the prospects for the 150,000 individual savers who remain invested in Aberdeen's 24 other unit trusts.

Aberdeen chief executive Martin Gilbert says the company will move away from private investors for at least two years. 'We have decided to take a strategic step back from the retail market and regroup,' he says.

'There have been issues over our reputation and we have a desire to put the funds on a firmer footing. It has been a dreadful six to eight months for us.'

Gilbert denies that the remaining investors will end up as second-class citizens within an Aberdeen now focused on big City clients. But many IFAs feel that Aberdeen's name has already slumped too far. Dampier says: 'My view is that most unit holders who remain with Aberdeen are better off selling. The brand is damaged and money will continue to trickle out. The exceptions are the excellent Far East funds managed by Hugh Young.'

But the deal is encouraging news for savers who were unlucky enough to invest in Aberdeen's Progressive Growth unit trust. This fund mainly bought shares in split-capital trusts and has been hammered by the collapse in the sector. Investors have seen its value slump almost 60% since it launched in July 2000.

Aberdeen, which is responsible for marketing the trust, has said it will offer a 'capital uplift' package to those who bought into the fund if there is still a shortfall on their investment in August 2005. Proceeds from the New Star deal mean there is now more money in the kitty to help honour these promises.

Meanwhile, the Financial Services Authority last week published proposals it hopes will help guard against a repeat of the split-capital disasters.

It wants to ban fund managers who look after a trust's assets from also being a director of that trust. It also plans to limit an investment trust's holdings in other investment trusts to ten%.